News   Mar 28, 2024
 22     0 
News   Mar 28, 2024
 530     0 
News   Mar 28, 2024
 345     0 

Garth Turner's latest book: Greater Fool: The Troubled Future of Real Estate

urbandreamer

recession proof
Member Bio
Joined
Apr 23, 2007
Messages
14,522
Reaction score
411
Location
renderpornstar.com
I'm a real estate nut so I'll have to read this book. I believe there's going to be a surprise correction sometime--this Fall, 2009?--but whatever happens, Garth Turner sounds like my kinda guy: a lone wolf I love that description because it describes me too.:)

Debate the story fellow UT real estate geeks.

http://www.thestar.com/living/article/345287

BOOK REVIEW
TheStar.com | living | End times for the boom?

End times for the boom?

RICHARD LAUTENS/TORONTO STAR
Aura, a 75-storey tower to be built at Yonge and Gerrard, prompted another condo lineup last week. Is it a sign of dangerous real estate mania or that demand for urban living is unsatisfied?

Greater Fool: The Troubled Future of Real Estate.
by Garth Turner.
Key Porter Books,
220 pages, $21.95
There are many good reasons to read Garth Turner's book, but economists don't buy his doom and gloom

Mar 15, 2008 04:30 AM

Stephen Wickens
Real Estate Editor

Once upon a time, Garth Turner told a Toronto real estate industry luncheon that the local property-buying frenzy and soaring prices were doomed. Arguing that average families could no longer afford average house prices, he declared a correction inevitable, if not at hand.

It was 1987, and for his bluntness, the then-business editor of the Toronto Sun was pelted with buns.

Twenty-one years later, Turner, now the Liberal MP for Halton, is predicting another crash. But this time, housing industry people might want to hurl bricks.

Greater Fool: The Troubled Future of Real Estate will hit bookstores across Canada on Monday. By next weekend, it will undoubtedly have rattled a few readers, though a bit of a reality check might be in order for anyone feeling squeezed under the current "good times" climate.

Turner can expect to be branded as a fearmonger, especially by people whose livelihoods require that home prices keep rising. The rest of us might want to prepare for a barrage of reassurances that a U.S.-style market meltdown can't possibly happen here, in large part because our economy is strong and our banks adhere to much more stringent lending practices than their U.S. counterparts.

To guess further about the fallout from his book would be foolish. The cautiousness stems in part from what is probably the book's biggest flaw: Turner's inability to resist making predictions – a long-standing trait, it seems.

Depending on how you look at it, Turner was right, wrong or ahead of his time back in 1987 (the book says 1989, a typo that won't be fixed for the first press run). The 1980s boom did go bust, but it took a few more years, by which time he was a Conservative MP.

In the interim, as the market roared on, Turner was seen by some as proof that journalists shouldn't prognosticate. As buyers lined up in all kinds of weather to purchase subdivision homes – something he now sees as eerily similar to recent condo lineups – Turner largely stuck to his guns, warning that all the signs of a correction or housing crash remained.

He's good at seeing patterns and identifying potential trouble, even if he can't tell how far off it is. He doesn't pull punches either, blasting the media – real estate sections in particular – for letting industry people dominate debates about our housing market health.

He writes that a reckoning is imminent because we've been as greedy as Americans, who are enduring their worst real estate deflation since the 1930s. He takes issue with claims that our banks are prudent, arguing that zero-down mortgages and 40-year amortizations are useful only to speculators and people who can't really afford to be in the game.

He also cites recent reports that personal debt levels in Canada are at record highs and savings rates at record lows, leaving many short on options should hard times hit.

"An anti-real estate mood has swept America. Within months it will be here," he declares. He claims that suburban trophy houses in some areas of the GTA are lingering on the market and falling in value. He says the collapse will be widespread and long-lasting, in part because boomers will flood the market with houses to finance their retirements – especially since so few employees outside the public sector have much in the way of pension prospects.

His scenario gets scarier, if you fear that manufacturing jobs are in danger due to the strong Canadian dollar and the likelihood the U.S. will slip into recession. The logic is that it won't take many deeply indebted, freshly unemployed people to trigger a wave of desperation selling. That, in turn, would drag down property values for entire neighbourhoods, leaving many people with mortgages worth substantially more than their homes.

It's that situation that caused an estimated 1 million Americans to walk away from their homes last year, with predictions that twice that number will follow in 2008.

Frightened enough yet?

Well, unless you're already struggling to carry a huge mortgage with a long amortization on a large house on some car-dependent patch of suburbia, you can almost certainly relax. But you might want to include a read of Greater Fool as part of that relaxation – no matter what your circumstances are.

Wise investors diversify their portfolios, but by some estimates, most Canadian households have more than 80 per cent of their wealth tied up in real estate. And Turner is correct to point out that many, if not most, people are deluded by real estate mythology. Many believe it's always better to own than rent. Many think prices always rise. Many see real estate as a foolproof route to financial freedom, even though history has shown that at times real estate can be a great destroyer of wealth.

Turner is also correct to point out that economists employed by large real estate firms, banks and mortgage insurers tend to be quoted uncritically in Canadian media.

But try to find a respected Canadian economist who buys into Turner's pessimism. People at the University of Toronto's economics department, the Ivey School of Business at the University of Western Ontario and University of British Columbia's Centre for Urban Economics and Real Estate couldn't find one for us.

While most seem to think a gradual softening is likely after 10 years of constant price increases, a U.S.-style meltdown doesn't appear to be on anyone's radar.

"I think you will have a very tough time finding any economists who agree with Turner on this," says Tsur Somerville of UBC.

He worked on a recent study that, in part, looked at the relationship between rents and real estate prices in seven cities, and says it appears that properties in Vancouver, Calgary and Ottawa may be overpriced, but not in Toronto, Montreal, Edmonton and Halifax.

"There are many factors to consider," Tsur says, "but in Toronto the price increases have actually been quite moderate. There doesn't appear to be an oversupply of homes," in part because population continues to grow.

"If world capital markets blow up, then all bets are off," says Somerville, who adds that there may be some risk from having many condos held by investors rather than owner-occupiers. "We do not know how they will behave if the market stagnates or turns down."

Gilles Duranton of the University of Toronto is not keen on long-term predictions, but can't see any circumstances likely to cause a significant downturn in the next six months. "There are sometimes bubbles waiting to burst," he says, "but nothing indicates the Toronto market is bubbly."

While he has long been familiar with the theory that retiring boomers will flood the market with real estate, he disagrees with it.

"All the evidence seems to indicate people don't downsize much as they retire," says Duranton, a specialist in urban economics. He says it's not just that boomers are buying second homes and likely will continue to do so, it's the premise that people automatically downsize as empty nesters has been proven to be "empirically wrong."

Recession in the U.S. and some form of market correction in Canadian markets appear likely. But it's worth noting that interest rates are low and likely to remain stable, unlike when the housing market last imploded in the early 1990s. Our unemployment rate is at a 33-year low. Of the Group of Seven nations, Canada has the only federal government running surpluses, while our debt-to-GDP ratio is by far the lowest. That gives Ottawa room to stimulate the economy should a U.S. recession drag us down.

We have some wacky real estate markets in Canada (last year was ridiculously hot in Saskatoon) but the 47 per cent rise in value between 1997 and 2005 leaves us looking quite modest. According to The Economist magazine, in three countries whose real estate markets took a hit last year – the U.S., Australia and Britain – prices rose over that same period by 73 per cent, 114 per cent and 154 per cent, respectively.

Is the local market flooded with properties? Probably not.

Statistics Canada reports that while housing starts have soared in the three westernmost provinces, in Ontario they've come down five years in a row – from 85,180 in 2003 to 68,123 last year. The Toronto Real Estate Board's monthly report for February indicates that listings remain tight and the houses are spending less time on the market than at this time last year.

Turner tells us that lineups for condos may be a sign of mania. He may be right, but they may also indicate there's a pent-up demand for urban homes, a market developers largely ignored for decades.

But whatever flaws there may be in Greater Fool, it is worthy of attention for several reasons. It's wise to understand the perspectives of people who don't run with the herd and Turner has long been a lone wolf (something that got him kicked out of Prime Minister Stephen Harper's caucus in 2006).

He is not totally down on real estate – which shouldn't surprise if you consider that the sector has mostly been good to him over the years. But he stresses that timing is important and that real estate is a generally illiquid asset that can't be sold with a quick phone call, like stocks or bonds.

Turner, who spent his years between stints in Parliament producing real estate investment infomercials, has also developed interesting theories about what types of properties have the best futures: spend extra for green amenities and urbanity while passing on pools, granite countertops and suburbia.

Greater Fool is an easy-to-read economics book and, if you have a significant chunk of your worth tied to real estate, you should make yourself familiar with what he has to say. But you should also study a broad range of views and always consider the source.

Even though I'm no economist, several Star readers have asked recently if I expect a downturn. I've replied that some level of correction wouldn't surprise me.

And after reading Turner's book, am I in a rush to sell my house so I can rent and wait to pounce on post-meltdown deals? At the risk of proving myself the greater fool, I'd have to say not bloody likely.
 
Wow! That summary review was so long I fail to see the benefit of buying the guy's book!

Seems to me to be a fairly opportunistic self-promoter. If he were such a real estate genius he would start a hedge fund to capitalize on the approaching crash and generate mega fees as a reward for his successful performance as opposed to this soap box ranting. In any event, the bubble argument is much more applicable in a hollow city like Vancouver as opposed to a rapidly-populating metropolis such as Toronto.

I'm not impressed.
 
...
Either way, I'm buying in Hamilton so crash or boom won't affect me.

Well, "boom" might not affect you! (And I'm a former Hamiltonian, in case anyone thinks I am here just to take the usual cheap shots at the place.)

For those who follow Turner, he has been singing his doom and gloom song for years now. It's been so long that he's lost a bit of credibility by now. His book is no doubt timely, as the predictions of a slowdown are now widespread and coming from much more credible sources than him. But it sounds like there's little here that's new or surprising.

Edit: And BTW this is quite a good book review. Good for Richard Lautens, for actually taking a critical look at the book, not just regurgitating its major points as so many book reviews do.
 
Wow! That summary review was so long I fail to see the benefit of buying the guy's book!

Seems to me to be a fairly opportunistic self-promoter. If he were such a real estate genius he would start a hedge fund to capitalize on the approaching crash and generate mega fees as a reward for his successful performance as opposed to this soap box ranting. In any event, the bubble argument in much more applicable in a hollow city like Vancouver as opposed to a rapidly-populating metropolis such as Toronto.

I'm not impressed.
I'm curious how you've determined that Vancouver is "hollow" when, by comparison, the population of the city of Toronto grew less than 1% between 2001 and 2006 (source = statcan.ca).

Perhaps the reason that house prices in Vancouver have increased more rapidly than Toronto's is due to the fact that more people desire to live in Vancouver.

Regarding the book by Garth Turner, I think that part of what he is saying will come to pass... eventually. I remember reading similar articles by Garth Turner 5 years ago. Meanwhile, real estate prices have continued to climb. I think this is partly due to the fact, as mentioned, that real estate has been relatively cheap in Canada compared to other countries. I think the price of real estate has now caught up, and I agree with economists who predict that real estate prices will probably stabilize or increase at a moderate rate of 2% to 3% per year.

Garth Turner mentions vast tracts of suburban housing as being susceptible to a housing price decreases over time. Using supply and demand principles from economics, he is absolutely correct. First, many of these homes are too large for today's smaller families, and as energy prices continue to rise, they will become increasingly uneconomic in terms of upkeep. Secondly, these homes force the resident to be dependent on a vehicle, because oftentimes public transit does not run frequently enough to enable the owners to get to work and/or shopping in an efficient manner. Increasingly, these types of residences are going to become less in demand; and once demand drops, then a price drop inevitably follows - especially if a market has an over-supply of inventory (which is the case in several US cities).
 
Toronto=GTA

http://www.cbc.ca/canada/toronto/story/2007/03/13/stats-toronto.html

As I'm sure others here will quickly attest to, the GTA is literally booming with growth. Whether that growth is concentrated in the 416 boundaries or not seems to be a matter of technical debate but the area is exploding and is very likely in the top 3 fastest growing urban areas in North America, if not the fastest.

Regardless, anyone who has spent time in Toronto in the past 5 years can clearly see the giant difference in the 416-city. In contrast, Vancouver is a very hollow place where ownership appears to be concentrated in the hands of non-residents. Check out Robert Shiller's comments on Vancouver almost 3 years ago:

http://www.theglobeandmail.com/serv...C/20050426/RTIP26-1/TPBusiness/?query=shiller



Turner's comments are specious and self-serving whether are not they contain any potentially accurate prediction. The old adage about the stopped clock is applicable here.
 
I finally read a bit about him last night; read his blog etc. He possibly might be nuts--he's a Pisces afterall....

Still, it could happen.

Either way, I'm buying in Hamilton so crash or boom won't affect me.

Why Hamilton Urbandreamer? There doesn't appear to be much future growth at all there.
 
Hamilton is cheap and close to ever growing Toronto and suburbs. The spill over will start soon. I look at Hamilton as the next up and coming area (kind of what Williamsburg is to Manhattan). If I had money I'd be buying up downtown Hamilton.
 
"But try to find a respected Canadian economist who buys into Turner's pessimism. People at the University of Toronto's economics department, the Ivey School of Business at the University of Western Ontario and University of British Columbia's Centre for Urban Economics and Real Estate couldn't find one for us."
 
Turner is the type of guy I love to listen to but never actually hear. He is, in a word, hilarious. Entertaining might be another fit. For what it is worth, his prediction is legitimate but not all that novel. Really, markets go up and down. The down cycle follows the up cycle - ECON 101 will tell you that. You'll also learn how to draw 'graphs' that consist of diagonal lines that go up and down. Real world is a lot more complicated than ECON 101 and this prediction fails to hold on to much more.

A lot of our real estate hopes are pinned to our growth and immigration forecasts. Given that the recent numbers published about the decline in immigration permitted by the Conservatives it might be leigitimate to question where there will be enough growth to fuel the market.
 
Turner is the type of guy I love to listen to but never actually hear. He is, in a word, hilarious. Entertaining might be another fit. For what it is worth, his prediction is legitimate but not all that novel. Really, markets go up and down. The down cycle follows the up cycle - ECON 101 will tell you that. You'll also learn how to draw 'graphs' that consist of diagonal lines that go up and down. Real world is a lot more complicated than ECON 101 and this prediction fails to hold on to much more.

A lot of our real estate hopes are pinned to our growth and immigration forecasts. Given that the recent numbers published about the decline in immigration permitted by the Conservatives it might be leigitimate to question where there will be enough growth to fuel the market.

What are your thoughts now?
 

Back
Top